U.S. dollar rises as traders seek safe haven

PolyaLesova

WilliamL. Watts

NEW YORK (MarketWatch) — The U.S. dollar rose against other major currencies Wednesday, with traders seeking the safety of the greenback as stocks on Wall Street posted steep losses and the euro declined.

The ICE dollar index
DXY, -0.30%
a measure of the dollar against a basket of six other major currencies, climbed to 82.649 from 81.781.

The WSJ Dollar Index
BUXX, +0.00%
a rival gauge that uses a slightly larger basket, traded at 73.78, compared to late Tuesday’s 73.66.

The dollar is typically seen as a safe-haven currency that tends to benefit at times of markets turmoil. U.S. stocks fell sharply on Wednesday after disappointing earnings from companies such as Bank of America Corp.

Weidmann also said that overcoming the euro zone’s debt crisis will remain a challenge over the next decade.

“The euro was hit hard by the decline in U.S. stocks and comments from ECB policy maker and Bundesbank President Jens Weidmann,” said Kathy Lien, managing director at BK Asset Management, in a note.

“The ECB is a central bank that likes to prepare the market for any potential changes in monetary policy and that is why Weidmann’s comments are so important because it could be the first of many to follow.”

The central bank lowered its 2013 growth forecast for the Canadian economy to 1.5% from 2% previously. The Bank of Canada said that “the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2% inflation target.”

The U.S. dollar climbed against Japan’s yen as the Federal Reserve’s so-called Beige Book said that the U.S. economy is growing at a “moderate” pace. The dollar
USDJPY, +0.00%
bought ¥98.10 in recent trade, up from ¥97.57 late Tuesday.

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The dollar last week appeared poised to breach to the psychologically key ¥100 level after the Bank of Japan unveiled a monetary-stimulus program that was more aggressive than many had anticipated. But as that level drew closer, the greenback encountered resistance.

The yen’s gains at the start of the week extended an advance Friday, when the dollar lost ground after the U.S. Treasury Department warned Japan “to refrain from competitive devaluation and targeting its exchange rate for competitive purpose.”

Is Japan facing debt apocalypse?

(3:10)

Japanese stocks have jumped 50% since November, but the biggest gains may well be behind.

No one-way bet on yen: HSBC

HSBC currency strategist David Bloom wrote in a report Tuesday that while the market expects that further yen weakness is inevitable as a result of the Bank of Japan’s monetary-easing program, “we believe it is not so straightforward” and that the yen isn’t a one-way bet.

There’s a “crooked line” between quantitative easing and a currency’s performance, Bloom said, citing the dollar index’s fall back to November 2008 levels in the wake of three QE programs by the U.S. Federal Reserve.

Likewise, the euro “ultimately benefited from LTRO balance-sheet expansion,” he said, referring to the European Central Bank’s “long-term refinancing operations” bank-lending program aimed at calming the euro-zone debt crisis.

Bloom said other central banks have “been even more aggressive than the [Bank of Japan] without fostering currency upheaval.” For example, the U.K.’s monetary base has risen roughly fivefold since 2008, and the U.S.’s monetary base has more than tripled since 2008, while Japan is aiming to double the size of its monetary base over two years. Bloom said the prospective moves in the relative size of money supply in these different economies could justify only part of the rally seen in the dollar against the yen. At best, HSBC’s analysis would suggest a dollar rally of 15% vs. the Japanese unit, “not the 28% surge witnessed since October 2012,” he said.

In other currency trading, the British pound
GBPUSD, +0.0000%
changed hands at $1.5238, slipping from $1.5371.

Minutes of the April meeting of the Bank of England’s nine-member Monetary Policy Committee showed no additional policy makers yet joined a call by three members to expand the bank’s asset-buying program.

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